Medicareless: the nation's largest insurer of the elderly could add a few benefits and save a few billion.

It's time for a health care quiz. If you were in charge of the largest health insurer of the nation's elderly would you:

A) Pay enormous charges for unnecessary and avoidable procedures and hospital stays, thereby incurring one of the largest drags on the nation's deficit, or

B) Fund proven, less expensive options that can be prevent extended illnesses, thereby reducing the cost to senior citizens and taxpayers?

If you picked B, don't quit your day job.

But if you picked A, congratulations, you may have a career waiting for you in the Health Care Financing Administration (HCFA), the organization that administers Medicare.

And that's the problem, for as HCFA and Congress grope for ways to reduce costs in the Medicare system, they see only the simplest and, ironically, the most harmful cures. Congress thinks only in terms of reducing benefits or trimming physician reimbursement rates. The seriousness of the health care crisis, they say, justifies the austerity of these measures. But times of emergency require more than mere draconian budget cutting; they require creativity.

Preventing serious illness - instead of waiting until expensive treatments are necessary - or offering alternatives to unnecessary procedures and hospitalizations can actually save HCFA money. It's a paradox that both politicians and the elderly can learn to love: By adding benefits, you can increase the health of America's senior citizens while slowing the meteoric rise of the Medicare budget.

* Increase funding of home health care.

"People are almost always happier in the home, and we would like to keep them there," says Joanne Schwartzberg, director of geriatric health at the American Medical Association. "We just haven't figured out a way to do that yet." The obstacle, however, isn't lack of medical knowledge; the obstacle is HCFA. Although patients are more comfortable at home, and home health is overwhelmingly cheaper than equivalent hospital care, Medicare's coverage encourages patients to stay in hospitals. The health benefits alone should be enough to encourage HCFA to increase its home care coverage, but since it is not, consider some of the economic advantages:

* According to study by Lewin/ICF, a patient recuperating from a hip fracture at home incurs $2,300 less in medical costs than one who stayed in a hospital. These savings multiplied by the approximately 250,000 hip fractures per year, could put Medicare's savings into the hundreds of millions.

* The same study found a $520 per case savings for victims of chronic obstructive pulmonary disease. At nearly 95,000 cases per year, that comes to an additional $48 million savings.

* By treating catastrophic accident victims at home, an Aetna Life & Casualty study found, Medicare could realize $78,000 per case savings.

Approximately one-third of all home care costs come out of recipients pockets, so it raises an eyebrow when Medicare says it pays "for all medically necessary home health services." Although there is n overall cost benefit for choosing home health care, the out-of-pocket costs for home patients actually can be hundreds more than hospital care. The heaviest burden, predictably,

falls on those with the lowest incomes who cannot afford supplementary insurance.

In spite of the overall savings, Medicare refuses to pay for things in the home - like special meals - that it pays inflated rates for in a hospital. As a result, patients face the following dilemma: receive care at home at added cost and burden to themselves and their family, or stay in the hospital and have everything but the deductible paid for by Medicare.

Fortunately, much of the apparatus for funding home health care is already in place. The interpretation of what constitutes "medically necessary" services, however, must be greatly relaxed. For instance, while Medicare will pay for wheelchairs and adjustable beds, it won't pay for the device that enables a patient to move from one to the other because that, in this screwy logic, is a "convenience item." Medicare will reimburse for primary dressings, such as gauze, but not for secondary dressings, such as the medical tape to hold that gauze in place. Says Schwartzberg: "This is the strange, Alice-in-Wonderland sort of world [Medicare] is in."

There is yet another obstacle to patients receiving care at home: Doctors don't feel it's in their interest to prescribe home care. And why should they? Many of the services doctors provide to home patients, such as phone consultations, aren't paid for, and those that are invariably are under-reimbursed. In spite of recent increases in reimbursement rates, a physician still receives an average $50 for a house call. It costs $90 to get a plumber to come fix your toilet. For doctors, the question is just as simple as for patients: Either prescribe home care, which provides little reimbursement for services, or keep patients in a hospital, where everything is paid for at a higher rate.

So simply by increasing reimbursement rates, and loosening regulations on what equipment and services are considered "medically necessary," HCFA could redirect the flow away from hospitals and toward the home, saving itself billions of dollars.

* Implement a home visit program for all Medicare

beneficiaries over the age of 75, including

those who are healthy.

Geriatricians at the UCLA School of Medicine conducted a test of over 400 Medicare beneficiaries over the age of 75. Every three months, a geriatric nurse visited the participants' homes, most of whom were active and relatively healthy, and took a comprehensive health survey. The nurse conducted a physical examination, a home-safety evaluation, and made sure prescribed care and medicine were taken properly. The nurse corrected any dangerous practices, advised the elderly on nutrition and exercise, and reported potential problems to the patient's physician. The cost of the visits was less than $550 per year.

And worth every penny. After the very first year, patients receiving the care were markedly healthier than an untreated control group. The study found that while the patients were not less likely to be admitted to a hospital, the length of stay was reduced from an average 12.2 to 9.6 days. Considering that an average day in the hospital costs around $1,000, that comes almost $3,000 saved in hospitalization alone. Furthermore, someone receiving the service was five times less likely to check into a nursing home. The reason for the success: The nurse's visits helped the patient and the physician tailor the care to the patient's health problems. The number of visits to the doctor was not significantly reduced; however, patients made fewer unnecessary trips, and the ones they made actually improved their health,

For HCFA to include these benefits in the Medicare package would require an about-face not seen since the program started in 1965. In HCFA's defense, there was less to prevent back then. Most people simply didn't live long past 65. But currently, someone who reaches 65 can expect to live another 15 to 20 years. And research has shown that even the simplest preventive care, such as exercise, can have a tangible effect on the well-being of people as old as 90.

Research notwithstanding, HCFA may still reject adding preventive care measures. "For HCFA to add these services, we would have to demonstrate in the short that preventive services are cost-effective," says Dr. Donald Patrick, who designed HCFA's preventive care research test at the University of North Carolina. The problem is that many will produce their most significant benefits later than Congress is willing to wait.

What HCFA may do is suggest doctors perform some of the services the nurses provided, only in their offices instead of at home. Doctors could talk about benefits of proper nutrition, exercise, and taking prescribed drugs just as well or better than a nurse, the logic goes. This would do minimal good, however, according to Dr. Andrea Steiner, evaluative coordinator for the UCLA project. "We found that the most valuable component was the nurse visits. Being in the person's home and seeing how they lived was far more valuable than any answer the person could give in doctor's office."

This direction would be a radical departure from the normal Medicare program, though such programs are becoming increasingly common. In July, Mutual of Omaha announced it had agreed to reimburse heart patients participating in preventive care programs, and Blue Cross/Blue Shield is expected to follow. In addition, Canada, Germany, and Australia all sponsor some form of preventive care. In the meantime Medicare is letting 1965's medical knowledge dictate the care for 1993's elderly.

* Extend coverage of prescribed Medicine to

senior citizens below the poverty line.

How's this for logic: Medicare will pay $40,000 for the expenses of a heart attack, but it won't pay the $1,200 for the medicine that would have prevented it. Nor will it pay for the $1,000 drug treatment that prevents $25,000 ulcer surgery, or the $1,300 in drug therapy that would make $8,400 in hospitalization for chemotherapy-induced anemia unnecessary.

Get the idea?

Medicare has never covered prescription drugs. But since the mid-sixties, researchers have discovered medicines that can help prevent major health problems or take the place of surgery once such problems occur. "One day in the hospital is $1,000," says Dr. Bruce Garret, a Washington D.C. kidney specialist. "That's a lot of pills. Medicine is what keeps people out of the hospital." Not only does it keep people out, it shortens their stay if they must be hospitalized. Canada, for instance, covers prescription drugs in its national health plan, and as a result, hospital stays are on average shorter than in the United States.

The most important thing to know about medicine is that it doesn't work if you don't take it. As obvious as this sounds, many elderly do not take their full prescriptions because they simply can't afford to. Senior citizens are the group in the country least likely to have coverage for their prescription medicine (only 36 percent). At the same time, they are far and away the most frequent users. A person under treatment for more than one condition can pay as much as $300 per month for medicine. So there are two options: Either don't take the medicine and wait for the inevitable complication to take you to a hospital, or take only a partial dose, cross your fingers, and hope that it's sufficient. Either will likely land you in a hospital, but that's okay, because Medicare covers hospitalization, including any drugs prescribed while you are there.

Drug money

What makes Medicare's drug restrictions more nonsensical is that drugs, while still overpriced, have increased in cost at just over half the rate of health care in general. So what is HCFA's problem? HCFA worries that if it insured prescriptions, there would be nothing to keep doctors from wildly prescribing medicine without any concern about the cost. Considering that American doctors are not renowned for restraint, HCFA could have a point. So here is a compromise: extend Medicare coverage to the most vulnerable recipients. A proposed health reform bill sponsored by Representatives Richard Gephardt (D-MO) and Pete Stark (D-CA) would guarantee drug coverage to all elderly below the poverty line. Since the chief savings would come from those who would not be able to afford their full prescription otherwise, Medicare should adopt this Gephardt-Stark proposal and make certain that these people have full access to prescriptions. It i one of the few times that the morally and financially right choices coincide.

In many respects, Medicare is doing an excellent job. It's one of the most efficient health insurance providers in the country. About 2 percent of Medicare's total budget is spent on administrative costs, versus 10 percent for Blue Cross/Blue Shield and over 15 percent for Mutual of Omaha.

But for the past quarter century, Medicare has been working on the Boy Scout principle: When an old lady gets to the street corner, help her across, and then let her go on her way. Today, however, there are too many street corners and too many old ladies to make this work. If Medicare is to succeed, it must realize that it is far more rewarding, and in many cases less costly, to ensure that the old lady can cross each street by herself.